Paycom
Annual meeting date: May 3
Chad Richison, President and CEO of Paycom who founded the company in 1998, is the highest paid CEO of the year thus far. With a reported compensation of $211,131,206 in 2020 (ten times higher than his compensation in 2019), the vast majority of Richison’s pay package is made up of a CEO Performance Award of 1,610,000 shares of restricted stock that are “eligible for vesting in two equal tranches.” As noted in the Proxy Statement:
“The first tranche vests if, within six years of the date of grant, the Company’s stock price (determined based on the arithmetic average of the volume weighted average price of a share of our Common Stock over 20 consecutive trading days (the “VWAP Value”)) equals or exceeds $1,000 per share. The second tranche vests if, within ten years of the date of grant, the Company’s VWAP Value equals or exceeds $1,750 per share.”
In other words, as described in a recent article by Dale Denwalt, “Half the shares are available if Paycom stock hits $1,000 within six years. The remainder can only become vested if the stock reaches $1,750 within a decade.” There is some discussion on how to accurately calculate the future value of grants of this size, which can lead to wildly different figures under different assumptions. An independent calculation by proxy advisory firm Institutional Shareholder Services ESG divisionestimated that that Richison’s total compensation was worth closer to $702 million based on the value of the shares underlying the equity awards.
Jason Clark, chair of Paycom’s compensation committee, attempted to defend the program, stating:
“This grant further aligns our CEO’s total compensation with the company’s sustained growth over the next decade and provides a strong incentive to continue building the company’s value. This award is entirely dependent on Mr. Richison achieving aggressive performance goals — which will generate tremendous value for our stockholders — specifically, an approximate 160% increase in (Paycom's) share price over the company’s current share price."
Paycom’s pay decisions this year raise several significant issues related to corporate governance. One of the largest is – what happens if these stock price goals are not met? In his article, Denwalt states that “Richison gets nothing” if either the stock price goals are not met or if he “is fired and the shares don't vest within a year.” Indeed, this is how the grant is designed to work, and sometimes it happens that way, but sometimes it doesn’t. Compensation-related promises are easily made and easily broken. No year exemplifies this more than 2021, where we have seen how boards can use their authority to offer rewards even when goals are not met, often creating amendments and including the word “special” in the name.
I also take issue with the phrase “further align” used in Clark’s justification of Richison’s pay package. It seems to be an absurd statement that suggests that no amount of alignment will ever be sufficient.. Richison owns over 8.5 million shares of company stock and is himself the largest shareholder. He currently owns 14.1% of the company. Is the implication that Richison is not fully committed to the future of the company he created, one that he has devoted his career to and one that has made him a billionaire? If that is indeed the logic used – would another stock grant really help?
Paycom’s business model is built on providing HR services, including to help companies retain and engage talent. What kind of message is it sending when the CEO makes 2,963 times the median employee?”